Navigating the risks of client acceptance

In a time of political and economic uncertainty, people are willing to call out poor conduct more than ever before. For organisations around the globe, this presents both a challenge and an opportunity. People expect businesses to prove that profit and purpose are not mutually exclusive – and we can be certain they will watch on with a critical eye, ready to call out firms who they perceive to not be adhering to these types of strong values.

At Grant Thornton, we are increasingly seeing our clients being held up to higher standards and in some cases, scrutinised for their business values. A number of these organisations have experienced calls for greater transparency and even asked to provide evidence to show that they truly are living and breathing their values, and not just paying lip service to words in an annual report.

“It’s not enough for businesses to make decisions as to who they work for based simply on capacity to service the work and the target’s willingness to pay anymore. You have to look at whether that target is one whose conduct and operations are not inconsistent with your values and consider the internal and external impact of associating yourself with them” cautions Peter Gamson, global head of professional services and partner at Grant Thornton UK.

One bad apple can rot the whole barrel

Being associated with a client or supplier who operates in conflict with your company values can affect your business just as much, if not more, than a positive client influence can boost your reputation. But do 100 ‘good’ clients outweigh a single ‘bad’ one?

Over the years there have been examples of this sort of conflicting illegal activity. We all remember the stories of athletes using performance enhancing drugs, fraud arising in supposedly ethical companies, and even retailers continuing to operate with full knowledge of child-labour sweatshops in their supply chain.

According to Bryan Merrigan, professional services audit partner at Grant Thornton US, there has been a shift towards whistleblowing from both inside and outside companies on not only illegal, but also immoral behaviour. “We see more instances of people bringing attention to actions which do not fit with our wider societal values. And the volume at which instances such as this are now broadcast to the world has only increased over time, especially with today’s prevalence of social media.”

This has caused organisations to sit up and take stock. In the UK, US and Europe, company officers have become more concerned about supply chain practices, because of the threat of prosecution – in the case of anti-bribery laws, for example – or reputational damage where supplier’s practices fall short of ethical standards.

ESG: one reason behind the trend

Measuring the impact of investing in a business is possible through monitoring that businesses’ environmental, social and governance (ESG) factors. It’s not unusual when submitting a bid these days, to be asked what your approach to sustainability is. Or diversity and inclusion for that matter. It is no longer sufficient to only satisfy the expected legal questions on important legislation such as modern slavery, data privacy, and financial stability. There is more emphasis on living up to your company values throughout all your business dealings. In a similar vein, businesses are now paying more attention to client acceptance risk, also known as engagement risk, than ever before.

Peter says, “it’s never been more important to measure your business’ impact. We speak with professional services firms on a daily basis and are often asked how much attention this needs right now. Our answer: it’s critical. And it’s not just a short-term quick fix that is needed. Businesses need to put plans in place and develop a real approach for the long-term.”

To accept or not to accept, that is the question

Acceptance risk is tied to knowing who you are doing business with and is (hopefully) not a new concept to most professional services firms. On a personal level, when you meet someone new, you tend to have a few conversations before concluding whether or not you have compatible interests and values. This can then lead to a beautiful friendship. But over time, you may find that you begin to have differences of opinion or your priorities cease to be aligned and may even be in conflict.

The same applies to business. It pays to take considerable time and effort to understand and get to know who you are doing business with. Imagine if you discovered that a charity you donate to was handling dirty money – for a good cause. Is that acceptable? Of course not. You are judged on all your dealings and if you do not do your research, you risk the potential for it backfiring on you and your business.

Actions speak louder than words

The relatively recent case of the Royal Shakespeare Company deciding to sever its ties with BP due to concerns expressed by students and actors alike, is an interesting example of an entity being prepared to step away from a remunerative arrangement to ensure the outside world’s perception of its value is not undermined. Many professional services firms are also now seeing rising pressure to act similarly when it comes to making judgments about who they are prepared to work with, or for. Putting reputational and values-based matters ahead of economic gain is not something that firms have historically found easy and therefore this isn’t an easy thing for a firm to make happen overnight.

So, do your actions speak louder than words? How does your business combat this risk? “Don’t make the mistake of thinking that you can make assumptions – things can change so quickly”, says Conor Farley, audit partner at Grant Thornton Australia. “When making a decision to contract with a supplier or service provider, you would do your due diligence before entering into an agreement. Why not apply the same kind of assessment to your current and prospective clients?”

Safeguarding your reputation

Professional services firms, like many service businesses, often rely on their reputation to help them win and maintain their client base. The advice and expertise of your people is your primary business and trust is your most valued possession.

Ask yourself: if you had a supplier, client, or partner with views that contradict your personal values and/or the ethics of your company, should you really work with them?

One sector where there has been pressure for greater transparency from shareholders – prompted by a series of environmental disasters, allegations of ‘greenwashing’ and the growing profile of ethical investing – is the oil industry. Over the last couple of years, we have seen significant companies being held to account by societal values and many are gradually waking up to the need to drive change through their environmental, social and governance activities. Conversations with many leading professional services firms indicate that this level of scrutiny is starting to be visible in their spheres also.

The potential for adverse media coverage in relation to these matters is huge and it could create an adverse perception that will take a long time to address.

Employees: either your biggest fans or your greatest critic

In addition to the impression your choices make on the external audience, the internal audience is also watching with interest. If you do not believe in the way in which your organisation is conducting itself, how much do you really want to work for them? Employees are increasingly voting with their feet and resigning from businesses that do not fit with their personal values. We know that people need to feel safe, inspired and attuned to their employer – a salary is no longer enough to incentivise your staff to stay.

Attraction and retention of talent is a huge challenge across the globe, with many markets identifying a skills shortage. Businesses need to think about how they engage with their future leaders – the next generation are very likely to have different needs and expectations when they join the workforce. Bryan Merrigan notes “Generation Alpha will be joining the workforce, and they will expect purpose beyond salary,” he says. “They will need to be engaged differently and they won’t understand the hierarchical approach to leadership as they will be used to their voices being heard in relation to issues surrounding values and purpose.”

What do you need to do?

• Firms need a clear decision-making approach to assess the suitability of targets and clients and one that considers the values and ethical aspects of the other party, just as much as it considers their ability to reward the firm handsomely. The costs of mis-stepping in this area could easily be higher than the profit the relationship offers.
  
  
• Find a way of winding down work with clients that doesn’t stand up to scrutiny by reference to your values. In the short term this may impact your business, but it avoids the potential for a medium-term issue of a greater scale to arise.
  
  
• Listen to your people and your other clients and ensure your decisions about who you work with and how you work with them don’t conflict with the values they expect of your firm.

To discuss these and any other matters impacting professional services firms. Please contact us